Renaissance Technologies, the giant hedge fund founded by billionaire Jim Simons, looks like it has created the premier, tax-free retirement account for its employees.
A deft maneuver back in 2012 enabled employees to invest in RenTech’s storied Medallion Fund via individual retirement accounts, or IRAs, which provide tax benefits for millions of ordinary Americans savers who are putting money aside for their golden years.
The difference: ordinary people don’t have access to Medallion, one of the most successful hedge funds of all time. A recent filing with the Labor Department provides a glimpse into the staggering tax-free wealth Medallion has generated within RenTech employees’ IRAs. As of late 2017, the IRA assets exceeded $660 million, representing an eight-fold jump in roughly five years.
The gains stemmed from Renaissance’s ability to capitalize on a key rule change involving a type of retirement account known as a Roth IRA, where assets can appreciate tax-free after an initial levy is paid. In contrast, taxes on traditional IRAs are deferred until retirement, a structure that permits the government to take its cut on decades of potential investment gains.
‘A Slam-Dunk’
By paying the tax upfront through a Roth, Renaissance employees could then fully reap Medallion’s astronomical returns tax-free from then on. This was particularly valuable in Medallion’s case because the fund’s profits are often generated through short-term trading and thus subject to top tax rates.
“It was a slam-dunk investment for all the employees,” said Josh Lichtenstein, a partner in tax and benefits at Ropes & Gray.
Jonathan Gasthalter, an outside spokesman for East Setauket, New York-based Renaissance, declined to comment.
Renaissance’s strategy, designed to maximize returns that employees received from Medallion, had several moving parts:
The firm initially terminated its 401(k) plan for employees in 2010, a step that permitted them to roll the savings into traditional IRAs. Then, employees took advantage of a rule change that year allowing affluent Americans to convert their traditional IRAs into Roths. The following year, Renaissance applied for clearance from the U.S. Labor Department for employees to invest the accounts in Medallion, which the agency granted and made effective in January 2012.